Behavioral

Economics AND
FINANCIAL SERVICES
With Michael J. Meyer, VP Customer Experience and Operational
Excellence, Greater New York Mutual Insurance
WHAT IS BEHAVIORAL ECONOMICS?
In a time of great disruption, the Financial Services (FS) industry faces an
increasingly diversified portfolio of threat and opportunity. Game-changing
developments in technology and regulation have opened a Pandora’s Box of new
customer demand and expectation. Meanwhile, the boom in digital challengers,
places traditional brick and mortar institutions under intensifying pressure to
introduce new ways of working in order to keep up with the ever changing times.

Sitting at the intersection of psychology and economics, Behavioral Economics

(BE) provides a theoretical framework to the science of human decision-making.
Often described as ‘the study of consistent irrationality’, it shines a light on the
factors that drive consumer choices and exposes how many of these decisions are
often not as logical as assumed. For FS providers, BE offers an opportunity to lift
the lid on consumers’ minds, and design a customer experience that caters to a
new age of finance.

Michael Meyer, VP of Customer Experience and Operational Excellence at

Greater New York Mutual Insurance (GNY), is one transformation leader working
to revolutionize his business through the introduction of BE principles. Currently
focusing on the customer experience provided by the insurer’s underwriting arm,
he is creating awareness of the value of finely-tuned customer interactions in the
pursuit of operational excellence.

Here, we explore some of the pivotal elements of BE within the FS context while
sharing an insight into Michael’s own experiences in introducing this new way of
thought to GNY.
the power of emotion
“In our business, while speed is important, we also place a lot of value on having
exploratory, meaningful interactions with our customers beyond just processing
a transaction,” says Michael. For many FS providers, there is a natural tendency
to design solutions that put speed and efficiency at the fore. From taking out an
insurance policy to applying for a loan, great value is often placed on customer
journeys that strip back the fluff to be as streamlined as possible. But, as logically
beneficial as such an approach appears, there is a risk that the customer’s innate
human need to feel cared about may be neglected and, in BE, it’s feelings that
drive customer loyalty.

In the context of FS, opportunities to influence customer emotions arise at

touchpoints such as phone calls and written correspondence. “Every time you talk
to a customer and you end that contact point, you’re leaving them with an emotion
that they will remember” Michael explains, “emotions can drive judgments
and behavior more than rationality and logic does.” For some customers, these
experiences may be the deciding factor as to whether they decide to initiate or
continue a relationship with a company. “Our simple behavioral economics guiding
principle is ‘Positive Customer Emotions = Positive Financial Impacts.”

BEHAVIORAL ECONOMICS IN ACTION: ANCHORING

In BE theory, Anchoring refers to how the first fact, number or person that a
customer encounters will bias their subsequent judgement and decision making.
Below, Michael explains how simple changes to a letter’s structure, language and
phrasing transformed the emotion that GNY’s customers experienced, influencing
their proceeding engagement with the business.

“We had a system-generated letter that would go out to policy holders when they
were late paying their premium. This can happen to any of us – a bill gets lost in
the stack and you just forget to pay it. But, when I first came across the letter and
read it as if I were a customer, I thought: This not good. The emotion it created
was negative and almost threatening. So, we completely rewrote the letter so
that it created a positive emotional impact. It went from a threat to: ‘Thank you
for your business. We are waiting on your premium payment, so we can continue
to provide service to you.’ It was a complete 180.

Similarly, with our new business quote letter, the original document began with
the address of the property that was, potentially, going to be insured and then
went straight into the relevant legal jargon. Of course, from a legal standpoint,
it’s important that this information is included, but it wasn’t until the second page
that the letter shared positive insights about the company. To improve this, we
swapped them around so that the customer’s experience began with positive
emotion, which went on to influence how they engaged with the rest of the letter.
These aren’t complicated changes, but they can have a significant impact”
easy trumps everythinG
“In behavioral economics theory, easy trumps everything – even cost,” explains
Michael. Pointing to the irrationality of human-decision making, numerous
accounts of BE research have demonstrated how individuals are more likely to
opt for short-term ease over long-term gain, be that in cases relating to finances,
health or relationships.

In an age where customer expectations reflect a culture of instant gratification,

institutions should attend to this demand for ease. Switch the focus from making
arguments as to why a customer should part with their money to removing the
friction and barriers that may deter them from doing so. “Personally, if something’s
easy I’ll pay more for it, because time is money,” says Michael.

Those integrating BE theory into the design of their customer experience can
likely find numerous opportunities for improvement in the communication options
they provide. “We have found that if we provide too many options, our broker
customers can become confused, especially when they are also interacting with
other carriers. As a result, one of the things we talk about is understanding how
customers prefer to interact or communicate with us, and us with them, which
simplifies things for the customer.” Alongside creating a more pleasant interaction
for the customer, re-assessing preferred customer touch point methods will
inherently remove communication obstacles and barriers.

BEHAVIORAL ECONOMICS IN ACTION: friction costs

Friction costs is a BE term for the idea that people can be deterred from taking
action by seemingly small barriers. Here, Michael explains how customer opinions
received by GNY helped them to reassess a self-service function to improve the
customer experience.

“A while back, we received some feedback indicating that it was a somewhat

cumbersome process to determine the status of a claim in our broker portal.
Brokers wanted an easier way to see the status of a claim in a quick snapshot.
We took this feedback to heart and have since redesigned our broker portal
and created a single page policy level claims status page that is easy to get to. If
additional detail is desired, it is also easy to drill down from policy to individual
claim, and then to claimant level.”
INTRODUCING THE change
With legacy companies like GNY, an institution established over 100 years ago,
it’s common that many of the instilled approaches to customer experience are
somewhat outdated. As Michael explains, introducing a behavioral economics
mindset into such an environment requires a significant change management
effort.

In the FS industry in particular, it’s critical to create an awareness of why

customer experience is important to begin with. “People don’t really think about
touchpoints and how important they are,” Michael explains. At GNY, customer
experience awareness workshops have helped to provide employees with a
critical understanding of the value of applying BE principles and a BE mindset.
This has not only improved customer experiences, but has contributed to driving
these changes in the back-office as well

BEHAVIORAL ECONOMICS IN ACTION: HEURISTICS

In BE, Heuristics refer to cognitive shortcuts that simplify decisions. There are
several types of heuristics, however the Availability Heuristic emphasizes how
individuals make judgements about the likeliness of an event based on how easily
an example case comes to mind. Here, Michael explains how the availability
heuristic was used to introduce BE into the culture of GNY through the creation
of a type of ‘proof of concept’ to encourage the company’s various branches to
adopt a BE-centric mentality

“On the front-end of rolling out our new underwriting operating model across our
6 branches, much thought was given to the change management and behavioral
economics aspects. We started with a branch with an enthusiastic leader who
was totally on board with the new way of doing things. We had some long-term
employees that we knew would need to learn to think differently. For example,
not just focusing on a submission that they were presented with but the person
and relationship behind it.

During the rollout workshops, when we initially asked employees ‘where do you
touch a customer?’ they had to really think about what that meant. The workshops
provided an opportunity to demonstrate the difference between a bad and good
experience through ‘real-life’ stories, videos and role playing where emphasis was
placed on the importance of ending every touchpoint with a positive message and
tone. With each branch rollout, I did a change management exercise that shows
the cost of process handoffs, not understanding the process from end to end, and
not knowing the customer, which helped to set the stage for the change.

While a few individuals struggled with the change at first, most have since
become strong proponents of the new operating model. Armed with a successful
first branch rollout and vocal supporters, momentum and buy-in increased as
the remaining branches were rolled out in a planned sequence. The resulting
behavioral change has in turn contributed to a significant economic impact in the
form of profitable growth for GNY.”
LEARN MORE

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